Treasury MD questions "poorly-targeted" tax breaks claim

Edward Troup unconvinced by both Osborne's decision and TIGA's numbers

The MD of Budget, Tax and Welfare for the treasury, Edward Troup, has explained yet challenged Chancellor of the Exchequer George Osborne's dismissal of tax relief for the games industry as "poorly-targeted."

"I am not sure I would say it was poorly targeted," Troup told the Scottish Affairs Committee recently. "It was targeted at the video games industry."

"The current Government, having looked at this and having looked at its overall approach to how best to support the economy and growth, has taken the approach that, actually, the best way to support growth is through stimulating the economy as a whole by not picking particular sectors but by reducing the cost of taxation."

Troup cast further light on why Osborne had used the 'poorly targeted' line, claiming it was about the details of the proposed relief rather than its concept.

"Generally, what has happened with all of the reliefs that we have introduced over the years is that at the boundary the people who are just outside come back and say, "It is not very well targeted. You have overtargeted it. You have missed me out." I am sure exactly the same thing will happen here.

"But this would be possible. We could do this if we wanted to. There would be issues; there would be boundary issues, but it would work."

However, Troup was clear that bringing about tax relief can be a long game, as the treasury had experienced from previous support lent to the UK film industry.

"We ended up giving huge amounts of tax relief to people who invested in television series and television programmes, and it took about 30 years until we actually got back to the reforms in... the film tax industry three or four years ago.

"Obviously we learnt a lot from that but I can't say exactly how those problems would be replicated in the video games industry. Video games have some similarities to films in its production and development techniques, but it is not... just a matter of taking the film tax credit and crossing out 'film' and putting 'video games' in."

Troup also confirmed that "There were conversations with Treasury officials [and games industry representatives] after the election but there were no actual meetings" ahead of the Budget.

The decision appeared to have been made without significant discussion with the games industry. "[Exchequer secretary] David Gauke, when you saw him last week, said the Government wasn't keen to extend the number of reliefs in the tax system unless there was strong evidence of market failure."

The Treasury man also disputed claims that tax relief was necessary to prevent a talent drain to Canada. "We can't, in a sense, start adjusting our forecasts because we say, 'Oh well, we think this might keep 50 people or 100 people from leaving the country.'

"It is the aggregate level of employment in the UK and migration to and from the UK which ultimately drives our view on tax revenue."

He later observed that "The evidence is there has not been mass emigration of graduates. They have found jobs. I don't have any evidence on internal migration."

Troup went on to question the accuracy of figures provided by Richard Wilson, boss of trade association TIGA in regard to the potential return on games industry investment.

"Let's be clear. I am not saying his calculations are arithmetically wrong. I am saying that the assumptions on which they are predicated we would disagree with.

"I have not checked it myself but I am sure the arithmetic is fine, but the assumption about the creation of a job actually being an addition to the UK economy and hence an addition to our revenues we just do not accept."

Troup's hearing at the Committee (available in full here) was a long one. "I will need the Domino's Pizza's number if you are going to go on that long," he quipped.

Also interrogated was Minister for Culture, Media and Sport Ed Vaizey, who talked of ongoing plans to pursue incentives for the games industry. A full report will follow.

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"Poorly targeted" meaning "we shouldn't be targeting tax breaks at the games industry at all", or "poorly targeted" meaning "it's aimed at the video games industry but the practicalities will be difficult".

It's really hard to tell from these comments where the phrase applies. My instinct all along was the latter, meaning that the Coalition thought it was poorly targeted because it affected a single industry.

Canada has enough its own inexperienced graduates, they don't really need to "drain" them from the UK. It's all about people with exprience. Couple of my friends just went to work for Canada based studios and they are senior level people with 10+ years of experience.

Edited 1 times. Last edit by Michal Doniec on 1st November 2010 3:18pm

I'm not upset that there will be no tax breaks, because let's face it most folk realise that the tax breaks would not actually benefit the coders, artists, designers or producers - no sir, the tax breaks would be reaped by the publisher's share holders and we really don't need any more breaks for them. as soon as the tax breaks had come in, the publishers would have re-adjusted the deals so developers would net the same. so the question would be would the publisher's tax saved lead to more studios being openend or more developers given opportunities? my guess, probably less than 20% of the tax saved would make it back into the industry. no I think if anything the tax should be adjusted so developers net income is improved, and perhaps if there is a slush fund the government should instruct the TSB (technology strategy board) to run a recurring small fund for high tech (oh wait they already do that) - perhaps we should just try and run our businesses better, rather than ask for tax breaks?

"the tax breaks would be reaped by the publisher's share holders and we really don't need any more breaks for them. as soon as the tax breaks had come in, the publishers would have re-adjusted the deals so developers would net the same."

So what I am getting at here is, while the gov can target tax breaks for other industries, they feel like they can write off the Videogame Industry's right to have tax breaks because the gov are afraid of people asking "Why didn't I get the same treatment?"

Such a bad way of putting it, also gives me an idea that the gov does not even care for an industry who does need tax breaks in the UK and who are always fighting above their weight to survive against higher funded competition.

Ive said before about tax breaks, it just wont end up in the right hands, and there's no shortage of skills in the UK anyways, which is surely at the core of the argument?. Where is the mass exodus of skills and who exactly are we trying to attract with a tax break that isn't already here with the skills we need? Good games aren't just made with bigger budgets and a company is only as good as the people in it. Look after your staff, create a great working atmosphere, and people will probably stay and create great content. Is there any evidence that games made in Canada do better sales or profit margins than those made in the UK? I'm not sure exactly, but I'd guess not. Similarly is there any evidence that a tax break would stop the collapse of a bad idea? It would probably just prolong it. A positive move would be investing in UK led start-ups in the form of a 3 year sponsorship of office space or something similar. That would benefit most start-ups greatly and allow them the opportunity to grow.

Canada is attractive, but its not because of a tax break. Its about the lifestyle change. You just don't immigrate for an extra 5k a year alone.

"perhaps we should just try and run our businesses better, rather than ask for tax breaks?"

"Good games aren't just made with bigger budgets and a company is only as good as the people in it. Look after your staff, create a great working atmosphere, and people will probably stay and create great content."

Well said. Half of the reason studios go under is because they're poorly run, same as in any other industry. A large part of the reason is also companies either making games no-one wants, or making a dog's breakfast of games people do want.

Tax breaks sound good but they will not stop a turkey being a turkey, or a poor manager being a poor manager. We as an industry need to stop blaming everyone else for our own failings. We all get annoyed when we get blamed for violence etc, yet when studios go under we all point the finger at the government for not giving us tax breaks, or the media for portraying us as filth-mongers corrupting the youth instead of looking at things objectively and saying "what could the studio have done better?".

Tax breaks would not have saved RTW for example. They blew a fortune on a game that turned out to be pretty awful quite frankly and they went bust. That's not the media's fault, it's not the governments fault.

There's a number of things that all conspire to make UK devs lament their lot - tax is just one of them and maybe not the most important. Let's not forget that a lot of these mega-offices in Canada have 300-400+ ppl in them, making uber-expensive games that have to sell squillions just to break even. Troups point about throwing money after an old business model is bang on in my book, whether he knows it or not. The main thing Canada-style tax breaks would do in the UK is allow more Realtime Worlds - bloated companys so weighed down by their size that they can't compete.

Tax is not the only issue - a problem that I see myself (though I might be alone) is that in my experience UK dev in general has got too lost in the business side of what we do and has forgotten why we do it in the first place. UK dev houses, armed with cash and success from the 90's, with a few exceptions have simply failed to become centres of excellence. Almost everywhere I go, folks in the industry are chasing money through deals rather than success through brilliance. It seems like 90% of the developers in the country are developing licenced games or publisher-owned properties. We have a situation where studios with 1/2/300 employees are out there touting for the same few small contracts, almost all of which are landed on terms hugely biased to the publisher. For these studios survival is becoming very tough but It's hard to see this in any other way than as a hole of their own making.

So it may be that the dinosaur mega-studios are in their last throws of life and the death-dealing meteors that will kill them off are just breaking the UK's atmosphere. But we needn't worry - already scattered around the region are nests of smaller, smarter, leaner creatures who evolved precisely to take advantage of the new world about to be created by this destruction. New shoots grow best where old growth is most devastated. Life will take its course I'm sure and if there's one thing the UK has over almost anywhere on the planet, it is strong gaming roots.

So I'm with Sandy - if we must have tax breaks, new start ups will give a much better return.

Some of this seems to be missing the point. The theory is that publishers will invest more as a proportion of their total investment in UK developed games, as against overseas developed games, if, other considerations being equal, there are tax advantages. Whether its good or bad government policy is one thing but clearly this would be a good thing for everyone in UK development.

@Ed. I hear what you are saying, and I'm not against the government supporting the industry. However, the industry is changing and in the long term, it could be better that we show we have the best skills in the world and were worth investing in, regardless of the particular type of relief, that I think you are suggesting.

If you join the current arms race of driving the tax relief down in order to attract business, and it suddenly becomes cheaper elsewhere, you may well always end up working for a company/publisher that will simply uproot to the next cheapest location, when it looks attractive to the bottom line, which is ultimately always shareholder lead.

In my opinion, that culture doesn't do anyone any favours in the UK industry, long term. Do we really want the same outcome as the banking industry, where they now say, change the rules and we will leave to do business elsewhere?

When the relief does revert back to normal levels in Canada, which it will do at some point, you might all of a sudden see that the UK becomes the most attractive proposition if there’s a solid skills base intact. It might well come sooner than later with the current tightening of state budgets! Also, if small companies show they are successful, regardless of where they are, you generally see multi-nationals falling over them for a slice of their action and ideas anyways. Surely creating that sort of climate is a better position to be in than attracting companies on the basis of a relief tax that could vanish when the next budget comes around. I just think with the recent changes to the industry and the economy, there’s now wiser ways to go about it.

These are of course my own personal views and not representative of any organisation or company :)

Edited 1 times. Last edit by Sandy Lobban on 3rd November 2010 12:13am

I think it is disappointing that this issue is not being treated with the same level of importance as the film industry. A recent story on this site mentioned that THQ had opened a new 400 person studio in Montreal. How many other companies are going to be incentivised to move some of their operations to other countries simply because the UK government will not provide them with any incentive to stay? And that's not to mention the potential deterrant to new games industry students with the new proposals for tuition fees as well :( Personally, I think the government needs to stop arguing and trying to rake in as much money as possible. Instead, they need to start talking seriously about a possible way forward for the games industry.